The Federal Open Market Committee consists of the seven Governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direction of monetary policy. Changes in monetary policy are now announced immediately after FOMC meetings. Why Investors Care
| Released on 10/29/08 | ||||||||||
| ||||||||||
Highlights
As expected the Federal Reserve cut its key policy rates by 50 basis points. The Fed by a vote of 10 to 0 lowered the fed funds target rate to 1.0 percent and the discount rate to 1.25 percent. The Fed cited slowing economic activity and "intensification of market turmoil" as reasons for the cuts. Also supporting the policy actions were "declines in the prices of energy and other commodities" and the expectation that inflation will moderate in coming quarters.
The FOMC left the door open on future rate cuts saying that it will monitor economic and financial developments and will "act as needed." In fact, even though the Fed stated that recent policy actions and official steps to strengthen should help to improve credit markets over time, the committee found that "downside risks to growth remain" - suggesting that the FOMC may be leaning toward another rate cut.
Stocks actually declined on the news as traders apparently had built in the 50 basis point rate cut and took profits on the news.
The Fed's news full statement follows.
"The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.
"The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.
"In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.
"Recent policy actions, including today's rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.
"Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh."
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco.
The FOMC announcement for the October FOMC policy meeting is expected to cut the fed funds rate another 50 basis points even though the Fed just lowered the target rate to 1.5 percent at an emergency meeting on October 8. Not only will markets get to parse the statement wording as usual but we get a revised Fed forecast for economic growth and inflation. A sharply lower forecast alone could rattle the markets even if the Fed does cut the target rate.
FOMC Consensus Forecast for 10/29/08 policy vote on fed funds target: down 50 basis points to 1.0 percent
Range: 74 percent probability for a 50 basis point cut and a 26 percent probability for a 75 basis point cut, based on settle for October 24
![[Chart]](chart.gif)
|
The Fed closely monitors the core PCE price index to indicate whether or not policy is approximately correct, overly accommodative, or too restrictive. The PCE price index is prefered to the CPI because it is more closely aligned to the cost of living than the CPI (which measures a fixed basket of goods & services.) This chart covers monthly data and the fed funds target rate reflects the monthly average. As such, it will not correspond to the most recent fed funds rate target announced by the Fed. |
| 2008 Release Schedule | |||||||||
|
powered by
![[Econoday]](../../../../../../../../../images/logo.gif){kind=logo}